Hidden Billionaire Milking Saudi Dairy Fortune in Desert

(Corrects location of Almarai farm in the first paragraph.
Corrects description of effort to contact company in the 10th
paragraph. Corrects method of cow feeding in the 17th
paragraph.)

Jan. 14 (Bloomberg) -- At a sprawling complex in the Saudi
desert, 90 miles southeast of Riyadh, dozens of black and white
Holstein cows amble from their sandy surroundings into air-conditioned milking halls. Inside, they take their places on a
motorized, rotating corral and are milked by machines while
munching on shredded alfalfa and being misted with water.

The herd is one of hundreds owned by Almarai Co., the
biggest food producer in the Persian Gulf, which processed about
235 million gallons of milk in 2012. The Riyadh-based company’s
revenue has almost tripled in the past five years to 7.95
billion riyals ($2.12 billion) as demand for its products --
milk, cheese, processed chicken, baked goods and juices -- has
surged with the nation’s population. Its shares are up 125
percent since its 2005 initial public offering.

The gain has made Prince Sultan bin Mohammed bin Saud Al
Kabeer, Almarai’s 59-year-old founder and largest individual
shareholder, a billionaire. His 28.6 percent stake in the
operation, plus other investments, has helped him amass a
fortune of at least $2.8 billion, according to the Bloomberg
Billionaires Index. He has never appeared on an international
wealth ranking.

“Establishing a dairy farm in the middle of the desert is
not that easy,” said Alaa Ghanem, a senior equity analyst at
Audi Saradar Investment Bank in a phone interview from his
office in Beirut. Almarai, he said, “is an example for anyone
who wants to succeed.”

Stud Farm

Retail sales have increased throughout the Middle East as
rulers boost spending to ensure their populations get a bigger
share of state energy wealth. Saudi’s King Abdullah declared
$130 billion of extra spending in February and March of 2011 in
response to popular movements that ousted leaders from Tunisia
to Yemen. According to data from the Saudi Arabian Monetary
Agency, consumer spending reached an all-time high of 176.9
billion riyals last May.

Al Kabeer is a descendant of Saud Al Kabeer, a cousin of
King Abdulaziz, the first Saudi monarch. His family line is
considered one of the most senior and influential branches of
the royal family, according to Sharaf Sabri, author of the 2001
book “The House of Saud in Commerce: A Study of Royal
Entrepreneurship in Saudi Arabia.”

Undisclosed Assets

In addition to his stake in Almarai, which is valued at
more than $2 billion, Al Kabeer owns 14.3 percent of Arabian
Shield, a Saudi insurance firm, and a 7.8 percent stake in
Yamamah Saudi Cement Company, Saudi stock exchange filings show.
Based on an analysis of dividends, insider transactions and
market performance, he probably has a portfolio of investable
assets worth at least $500 million, according to the Bloomberg
ranking.

Al Kabeer may also control undisclosed assets. He is the
chairman of five companies and one of the founders of 15 others,
including Bahrain’s Arcapita Bank and Sharjah, United Arab
Emirates-based Dana Gas PJSC, according to his corporate
biography. He also owns a stud farm outside Riyadh, where he has
about 100 thoroughbred racehorses in training, according to his
profile on the website for the Breeders’ Cup, one of the world’s
most influential horse racing events.

“The Al Kabeer are one of the premium merchant families
affiliated with the Al Saud,” said Theodore Karasik, director
of research at the Institute for Near East and Gulf Military
Analysis in Dubai, in a Jan. 8 e-mail describing their
relationship to the royal family. “As such, they receive
special perks for business investments.”

Reverse Boycotts

Those perks could include preferential access to business
ventures or handouts in the form of land or money, he said.
Phone messages left for Hussam Abdul Qader, a spokesman for
Almarai in Riyadh, were not returned. The company also did not
respond to messages sent to its media relations department
through its website.

In 1977, Al Kabeer founded Almarai -- whose name derives
from the Arabic word for pasture -- with Masstock Group
Holdings, an Irish farming-systems company owned by two
brothers, Paddy and Alistair McGuckian. The company was created
amid soaring oil prices, leading the Saudi government to fear
the possibility of reverse boycotts by farming superpowers such
as the U.S. and Europe, according to Nada Amin, an analyst at
investment bank EFG-Hermes in Cairo.

“Almarai was established as part of a general movement in
Saudi Arabia during the 1970s to achieve food security through
self-sufficiency,” said Amin in an e-mail on Jan. 8. “Since
then it’s flourished, transforming from a local fresh dairy
producer to a diversified regional giant.”

Joint Venture

Masstock sold the last of its stake in Almarai to Saudi
shareholders in 2004, a year before the company listed its
shares on the Saudi stock exchange. Almarai controls 44 percent
of the dairy market in the Gulf region, according to Riyadh-based investment bank NCB Capital. Since 2007, it’s spent more
than $3 billion adding new business lines, such as infant
formula and baked goods.

In 2009, Almarai formed a joint venture with PepsiCo Inc.
to invest in dairy and juice makers in southeast Asia, Africa
and Middle Eastern countries outside of the Gulf. In 2011, 98.8
percent of Almarai’s revenues came from Saudi Arabia and the
other five Gulf nations, according to data compiled by
Bloomberg.

Competitive Advantage

The company’s main competitive advantage, according to NCB,
lies in its four desert dairy farms, which house more than
60,000 cows. The farms include feeding areas that shelter the
animals from heat that can exceed 120 degrees Fahrenheit in the
summer.

The desert climate has turned out to be a benefit for Gulf
state dairy farmers. Almarai cows each produce about 12,400
liters of milk per year, which the company says is double the
European average. Cows at the Al Ain Dairy Farm, the largest
dairy company in the United Arab Emirates and an Almarai
competitor, produce more than 10,000 liters of milk per year,
according to a video about the company posted on YouTube in
March 2010.

The reason for the extra output: desert cows are
mechanically fed.

“Where I come from in Ireland, typical yields would be
5,000 liters a year, but their production system is based on
pastoral grazing,” said Patrick O’Dwyer, an Al-Ain
representative in the video. In the desert, “we bring the feed
into the cows every day. There is no grass for the cows to
eat.”

Argentine Alfalfa

Much of Almarai’s feedstock comes from South America. In
2011, it bought Argentine farm operator Fondomonte SA for 312
million riyal. Today, the company ships alfalfa and other feed
staples 7,900 miles from Argentina to support its cattle.

Almarai’s ownership of dairies, two processing plants and a
distribution system comprised of 1,000 vehicles, makes it more
profitable than its local and global peers. The operation’s
earnings before interest and taxes margin is at least 30 percent
bigger than Paris-based Danone SA, Switzerland’s Nestle SA and
Jeddah-based Savola AB, which is also Almarai’s largest
institutional shareholder.

“The chairman and the board play a very significant role
in determining the strategic direction of the company,” said
Asjad Yahya, vice president of research at Shuaa Capital in
Dubai in an e-mail on Jan. 10. Al Kabeer, he said, “is an
important source of direction for the company.”